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Donee organisations needing to register with Charities Services

Published 26 August 2019

Why this is important

From 1 April 2020 all entities with charitable purposes, that qualify for registration under the Charities Act, are required to be registered with the Department of Internal Affairs - Charities Services (Charities Services) in order to qualify for or retain donee tax status.

Having donee tax status qualifies your organisation for tax benefits such as donations of money qualifying the giver for a donations tax credit or a tax deduction.

Are you already registered?

If your organisation is already a registered charity, perhaps under a different name or as part of a larger organisation, please contact us at not-for-profits&charities@ird.govt.nz to let us know.

Donee organisations

Generally, a donee organisation is one which applies its funds wholly or mainly in New Zealand to:
   1. charitable purposes
   2. benevolent purpose
   3. philanthropic purposes
   4. cultural purposes.

Charitable purposes defined

A charitable purpose is where the rules of an organisation clearly state that its purposes are for one or more of the following:

  • the relief of poverty
  • the advancement of education
  • the advancement of religion
  • any other matters that are beneficial to the community.

The organisation's aims must also be for a public purpose except where they are for the relief of poverty. The benefit must be available to a large part of the community and the activities must not result in the private benefit or profit of any individual.

Further information is available at https://www.charities.govt.nz/ready-to-register/need-to-know-to-register/charitable-purpose/

Benevolent, philanthropic and cultural purposes defined

In general terms only:

  • Cultural purposes include dramatic, theatrical, operatic, ballet, choral or musical.
  • Benevolent and philanthropic purposes basically mean doing good for other people, for example, organisations whose proceeds or funds are used to benefit all or a large part of the public.

What you need to do

Registering with Charities Services

Charities Services can only register an organisation when confident that it has exclusively charitable purposes, is for the public benefit, and its activities do not result in the private benefit or profit of any individual.

Registrations can be backdated to the date a properly completed application is received.

A checklist of what is required as part of the application is available at https://www.charities.govt.nz/ready-to-register/ready-to-apply/apply-now/#Beforeyouregister

Sporting groups or organisations

Sporting organisations can qualify as charities if the promotion of sport is the means by which a charitable purpose is pursued – for example the ‘advancement of education’ or ‘promotion of health’. It must also advance benefits for a significant section of the public, not primarily for elite sportspeople.

Further Information

Further information can be obtained from Charities Services, Inland Revenue guide Charitable and donee organisations - IR255, or you can email Inland Revenue at not-for-profits&charities@ird.govt.nz

FREE webinar series for charities and not-for-profits who carry out some of their purposes overseas

Published 9 August 2019

If your charity or not-for-profit carries out some of its purposes overseas, or if you are interested in the following topics, you are invited to attend a series of free webinars from August to October 2019.

The webinars will be delivered by officials from several government agencies including Inland Revenue, the Ministry of Justice and Charities Services, a part of the Department of Internal Affairs. The purpose of the webinars is to help you understand some of the rules and obligations that may apply to your charity or not-for-profit organisation. The webinars will cover tax rules for donee organisations and charities, protecting your organisation from terrorism financing and ways to detect and prevent fraud in your not-for-profit.

Webinar 1: Know your tax obligations (Tuesday 27 August 2019, 12.00pm-1.00pm)

Inland Revenue will walk you through recent tax changes for charities and not-for-profits that carry out some of their purposes overseas. We will cover:

  • Our new guidance about donee status, including what to do if you apply 25% or more of your funds overseas and how to establish a New Zealand fund
  • How you could be eligible for overseas donee status
  • The tax benefits you can offer if your volunteers include student loan borrowers who work overseas
  • Your obligation to pay income tax if your charity receives business income and your purposes are not limited to New Zealand.

There will be opportunities to ask questions during the webinar.

Ahead of the presentation you may wish to familiarise yourself with the guidance Inland Revenue provides on its website for not-for-profit and charitable organisations working overseas.

Sign up for Webinar 1 here: Tax rules for donee organisations and charities - Presented by Inland Revenue

Webinar 2: Protecting your organisation from terrorism financing (Thursday 26 September 2019, 12.00pm-1.00pm)

Police and the Ministry of Justice will walk you through what terrorism financing is and how organisations like yours can unwittingly be taken advantage of to fund terrorism.

We will cover:

  • What terrorism financing is
  • What our international obligations are and why it matters to New Zealand
  • How not-for-profits can be abused to raise and move funds for terrorist purposes, especially overseas terrorism
  • How to stop terrorism financing, what to watch for and how doing this can actually help your organisation.

There will be opportunities to ask questions during the webinar and we will point you towards contacts who can help you when you need it.

Sign up for Webinar 2 here: Protecting your organisation from terrorism financing - Presented by the Police Financial Intelligence Unit, Ministry of Justice

Webinar 3: How to detect and prevent fraud (Thursday 24 October 2019, 12.00pm-1.00pm)

Charities Services will walk you through how to detect and prevent fraud in your charity or not-for-profit organisation.

We will cover:

  • What fraud is
  • What your responsibilities as a member of a board or committee of a charity are
  • How to detect fraud in your organisation
  • How to prevent fraud in in your organisation
  • What you should do if you identify fraud in your organisation.

We will also discuss examples of fraud that have resulted in significant losses to the charitable sector.

There will be opportunities to ask questions during the webinar.

Sign up for Webinar 3 here: How to detect and prevent fraud in your not-for-profit - Presented by Charities Services

Donations: what is required to establish and maintain a fund?

Published 25 June 2019

A person donating money to a donee organisation can receive tax benefits. A donee organisation includes a fund established and maintained exclusively for providing money for specified purposes within New Zealand. QB 19/10: Donations: What is required to establish and maintain a fund under s LD 3(2)(c) of the Income Tax Act 2007? considers what is required to establish and maintain such a fund so it qualifies as a “donee organisation”

QB 19/10 complements interpretation statement IS 18/05: Income tax - donee organisations – meaning of wholly or mainly applying funds to specified purposes within New Zealand.

Read QB 19/10

Read IS 18/05

Recent tax legislation changes for charities, not-for-profits and donee organisations

Published 25 June 2019

The recently enacted Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Act made amendments to the tax rules for charities and donee organisations.

Key features

Amendments ensure that:
   1. the charitable business income tax exemption is restricted to charities registered under the Charities Act 2005;
   2. organisations seeking donee status for donation tax credit must be approved by the Commissioner of Inland Revenue;
   3. organisations with charitable purposes must be a registered charity to obtain donee status;
   4. depreciation income recovery rules apply when a taxable entity becomes a registered charity;
   5. disclosure requirements that apply to foreign trusts also apply to where the trust is a registered charity;
   6. penalty, interest and avoidance provisions may apply to donation tax credits;
   7. clarifies the GST treatment on assets and their disposal by Not for Profit bodies (including charities).
   8. only gifts of money, (cash, electronic bank transfers, credit cards, and cheques) qualify as gifts eligible for donation tax credits or gift deductions. This does not include gifts in kind or debt forgiveness.

Also, donation receipts can now be submitted electronically during the year to a person’s myIR account with donations tax credits claimed as part of the end of year income tax process. However, people can continue to complete a separate donation tax credit claim form should they wish to.

Tax rules for deregistered charities:
   1. address the tax treatment of land owned by deregistered marae charities;
   2. clarify the valuation of assets and liabilities at the date of deregistration;
   3. a de minimis threshold for charities with a low value of accumulated net assets;
   4. prevent potential double-deduction for monetary gifts made within one year of deregistration;
   5. prevent potential over-taxation of deregistered charities in a group structures where multiple members deregister together;
   6. address disposal of a wholly-owned subsidiaries by a charitable group for market value.

More information is in the Tax Information Bulletin Vol 31 No 4 (May 2019)

Debt forgiveness and donation tax concessions

Published 25 June 2019

In August 2018 a High Court judgement held that forgiveness of a debt owed by a donee organisation can constitute a “monetary gift … paid” to a donee organisation. Therefore the donor may be eligible to claim a donation tax credit or gift deduction.

In October 2018 the Commissioner of Inland Revenue announced she would appeal that decision.

The Commissioner’s position continues to be that forgiveness of a debt owed by a donee organisation will not qualify for a donor donation tax credit or gift deduction.

An amendment was included in the Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Act to clarify that only gifts of money, including payments made by way of electronic bank transfers, credit cards, and cheques, qualify for donation tax credits. This amendment is consistent with the policy intent. The previous words “monetary gift of $5 or more” have been replaced with “gift of money of $5 or more”. The application date of the amendment is 1 April 2008. There is a savings provision for donors who have already taken a position that debt forgiveness qualifies as gift, however the savings provision will only apply if these donors filed a return or a donation tax credit claim before 16 January 2019. For these donors, their entitlement to donation tax credits will be subject to the outcome of the Commissioner’s appeal of the High Court judgement.

You can find out more about the August 2018 High Court judgement and the legislation change is explained in Tax Information Bulletin Vol 31 No 4 (May 2019).

You can also read the Commissioner's 2011 Revenue Alert about arrangements entered into to get a donation tax credit where there has not been a true gift of money.

Depreciation recovery when a taxable entity becomes a registered charity

Published 2 April 2019

QB 19/02: Depreciation – change of use event confirms that a business that becomes a charity will have a change of use of its depreciable property. This means depreciation recovery income may arise.
Read QB 19/02 (2 April 2019)

Terrorism financing risks in the Asia-Pacific

Published 21 December 2018

In November 2018, the report 'NPO red flag indicators 2018' was published to help the not-for-profit sector identify and mitigate the risks of terrorism financing in the Asia-Pacific region. It will be of particular interest to New Zealand non-for-profits that operate in or send funds to high-risk regions.

If your not-for-profit organisation sends funds overseas, we expect you to have internal controls to ensure the tax relief you receive is targeted appropriately.

Read the report and find more information about protecting your organisation's funds from being used for terrorism financing, as well as tax rules that affect not-for-profit and charitable organisations working overseas.

The interpretation of "wholly or mainly" for the purposes of the donee organisation test

Published 4 October 2018

Interpretation statement IS 18/05: Income tax - donee organisations – meaning of wholly or mainly applying funds to specified purposes in New Zealand concerns donee organisations under s LD 3(2)(a) of the Income Tax Act 2007.

It applies to organisations applying funds to charitable, benevolent, philanthropic, or cultural purposes within New Zealand and to other purposes (for example, overseas purposes). It doesn’t apply to organisations listed in schedule 32 of the Act.

The statement clarifies the interpretation of these requirements.

It also explains our “safe harbour” approach to administering this requirement. We will generally accept that an organisation meeting the minimum safe harbour percentage of 75% has met the requirement without asking you any more questions.

The statement is accompanied by IS 18/05 - fact sheet – applying the “safe harbour” approach. The fact sheet sets out the most important information from IS 18/05 without the legal details. It includes examples of when funds are considered to be applied to specified purposes within New Zealand, and an example of the safe harbour calculation.

Read the interpretation statement and fact sheet

State and state integrated schools - donation tax credits and GST

Published 21 June 2018

QB 18/10 Income tax – state schools and donation tax credits

QB 18/11 Income tax – state integrated schools and donation tax credits

These two “Questions we’ve been asked” (QWBAs) explain when a parent’s payment to a school will be a gift, so that the school can issue a donation tax receipt to the parent. A payment will be a gift when it is voluntary, does good for the school, and the parent obtains no material benefit or advantage in return for making the payment. The QWBAs refer to Circular 2018/01 Payments by parents of students in schools (Ministry of Education, 2018).

Find out more about QB18/10 and QB 18/11

Public Ruling BR Pub 18/06: Goods and services tax – payments made by parents to state and state integrated schools

GST is not chargeable on payments made by parents to the board of trustees of a state or state integrated school where the payments are made to assist the school with the cost of delivering education services which the student has a statutory entitlement to receive free of charge. GST is chargeable on payments made for supplies of other goods or services that are not integral to the supply of education to which the student has a statutory entitlement, where that supply is conditional on the payment being made.

This Ruling is a reissue of BR Pub 14/06 which expired on 20 June 2018. It is substantially the same as BR Pub 14/06 but some parts have been rewritten to improve readability, and legislative changes have been included. A new example (Example 5) has been added. The Ruling refers to Circular 2018/01 Payments by parents of students in schools (Ministry of Education, 2018).

Find out more about BR Pub 18/06

You can receive email notifications when draft public items are available for comment or when finalised public items are published. Contact Public Consultation to be placed on a distribution list.

Recent changes to the tax rules when a charity deregisters

Published 27 June 2018

In March 2018, amendments were made to the Income Tax Act which affect the tax rules when a charity deregisters. The changes extend the existing deregistration tax rules to all entities that derive exempt income under section CW 42 of the Income Tax Act (previously the rules just applied to registered charities). The changes also clarify that there will be no tax liability if assets are disposed of or transferred to another person for charitable purposes or in accordance with the entity's rules within 1 year of the deregistration.

The amendments apply to charities that are deregistered on or after 6 April 2016. You can find out more information about these changes in Tax Information Bulletin Vol 30 No 5 (June 2018) pp107-108